Meseret. Hotel

Promoter: - Woy.
Meseret Goshu Page 1

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Table of Contents
I. EXECUTIVE SUMMARY ..........................................................................................................2
II. PROJECT PROMOTER ............................................................................................................6
III. THE PROJECT ........................................................................................................................7
1. Description ...........................................................................................................................7
2. Project Status .......................................................................................................................8
3. Project Implementation Plan ..............................................................................................10
4. Beneficiaries of the Project .................................................................................................10
5. Project Rationales...............................................................................................................11
IV. ECONOMIC AND SECTOR REVIEW .......................................................................................11
1. Ethiopian Economy .............................................................................................................11
2. Tourism and Hotel Sector....................................................................................................14
V. MARKET- DEMAND & SUPPLY ANALYSIS AND STRATEGY.....................................................25
VI. TECHNICAL ANALYSIS..........................................................................................................40
VII. ORGANIZATION AND MANAGERMENT................................................................................43
1. Organization Structure........................................................................................................43
2. Management and Human resource .....................................................................................46
VIII. FINANCIAL ANALYSIS ..........................................................................................................49
1. Investment cost and financing structure .............................................................................49
2. Revenue Projection at full capacity .....................................................................................50
3. Operating Costs ..................................................................................................................52
4. Depreciation and amortization ...........................................................................................55
5. Initial Working capital.........................................................................................................56
6. Financial Results .................................................................................................................56
7. Sensitivity analysis..............................................................................................................61
Promoter: - Woy. Meseret Goshu Page 2

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I. EXECUTIVE SUMMARY
Ethiopia is one of the African countries that possess the highest number
of UNESCO World Heritage Sites in Africa, with different sites spread
throughout the whole country, and, therefore, has great potential to
develop itself as a tourist destination. The Government of Ethiopia (GOE)
has prioritized tourism development in its development strategy, to
optimize the existing tourism resources as a driving force of economic
growth for the whole country.
Ethiopia is a strategically important country in the Horn of Africa for
most countries and therefore, many international meetings and
conferences are held in Ethiopia. This creates huge demand for
accommodation at an international standard and even an increase in
such a demand is expected in the future because the importance of
Ethiopia has been growing and many international organizations have
been continuously strengthening their institutions and augmenting their
personnel in Ethiopia. The supply of accommodation, however, is far
below the level needed to meet the demand. Since the hotel industry
can create job opportunities for so-called blue collar workers, the

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development of the hotel industry is benefits not only the tourism sector
but also poverty reduction.
In the past twenty years the country has shown an encouraging private
investment in all areas of economic and social activities. The private
sector has been motivated by free market oriented economic policy on
the government. To stimulate private investment, the government
amended the investment proclamation several times which resulted in
booming of investment in all sectors of the economy.
Considering the attractive investment climate, Woy. Meseret Goshu has
decided to establish a three star hotel at Sebeta town of the Oromia
regional state. The promoter Meseret Goshu has secured a total leased
land with the area of 927 Square meters. The project building will
comprise B+G+5 main building.
The total investment cost of the project is estimated to be Birr 26.1
million. From the total investment cost, the promoter will contribute 30%
while the remaining 70 % is planned to be financed from bank loan.

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Hence, this feasibility study is conducted to determine the viability of the
project by capturing the current and future demand and supply of hotel
services at Sebeta town -a suburb to Addis Ababa.
The major Findings of the Feasibility Study are:
 The minimum net profit from service is expected to be Birr 3.0 million
in the first year and the maximum profit will be registered in year 10
that is more than birr 6.0 million. The cumulative net cash inflow is to
be Birr 85.5 million at the end of the project life.
 Using the major investment decision techniques, the launching of the
hotel project is found to be attractive showing the following financial
results:
 Net present value………………………Birr 26.5 million
 Internal rate of return………………29%
 The project will create job opportunity for more than 105 workers and
will generate income to the government in the form of profit tax
during its project life.

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II. PROJECT PROMOTER
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A. Legality
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 Project promoter: - Woy. Meseret Goshu Gebere- Hiwot
 Project:- Three Star Hotel
 Address:-Oromia Region, Finfine special zone, Sebeta town, Kebele-02
H. No. 1434.
 Registered capital: - birr 40 million.
 Form of Business:- sole proprietorship
 Investment License:-KID/IH/H2515/03 issued on 06.05.2003
 Authorizing government body:-Oromia Regional Government,
Investment bureau.
B. Background
Woy. Meseret Goshu as a sole trader started business before many
years. She has started her business activity by establishing standard
hotel in Negele Borena town of Oromia regional state Negele Borena
zone. The hotel is called after her father, ‘Goshu hotel’.
Considering the natural link between the tour and travel business with
the hotel service, the promoter later on has established a travel and tour

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business in Addis Ababa. The travel and tour company is called after her
name Meseret Goshu travel and tour.
It is the income generated from both businesses has now becomes an
equity source for the construction of a three star hotel project under
consideration.
III. THE PROJECT
1. Description
The project under consideration is construction of all comprehensive
three star hotel located at one of the fastest growing suburb town of
Sebeta which is located about 14 kilometers distance from Addis Ababa
on the road to Addis- Jima.
The hotel will have the following facilities for all of its customers.
 24 hours laundry service
 Transportation services from and to air port and to the city.
 Recreational activities like beauty center & shopping centers.
Further excursion programs will be offered by the travel and tour
business mentioned above.

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2. Project Status
 Land
The project is implemented on a plot of land with area of 927 square
meters.
The land is acquired on lease basis for 40 years from Sebeta town
municipality office. Per the agreement, the annual rental payment is birr
7,771. From the total lease value of birr 411,988, down payment of 10%
or birr 101 149 is already paid by the promoter.
 Building
The total construction cost consists of Basement+G+5 hotel building.
The construction cost is estimated to be Birr 7,000,000. Per engineer
estimate the building is 30% completed.
 Hotel furnishing Items
Hotel furnishing items include machinery, equipment, soft furnishings,
kitchen and utensils, furniture and equipment are determined and to be
purchased locally.

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 Vehicles
For the employees and gusts service and transportation of goods the
project will have two vehicles. One coaster and one pick up.
 Pre-operating Expenses
Out of the total pre-operating expenses of Birr 200,000, payments in
relation to Bill of quantity and plan preparation for the building are
covered by the promoter. Payment for utility lines is to be covered via
bank borrowing. The list of expenses is shown below.
Pre-operating Expenditure
Description Value in birr
Building plan & Bill of quantity 50,000
Water Line 50,000
Plan amendment and soil test 12,0000
Electric light 100,000
Total Pre-operating 200,000
Total investment made so far
Investment made so far

Description Value
Land 101,149
Building 2,100,000
Pre-operating Expenses 200,000
Total 2,401,149

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3. Project Implementation Plan
Year Activity Jan. Feb Mar April May June July Aug Sep Oct Nov Dec
2010 Land acquisition
Legal document
Preparation
Construction of
2011 Buildings
Debt financing
Acquisition of hotel
2012 furnishing
Finishing Construction
Operation
As indicated in the above schedule, the project inception was started in
June, 2010 and majority works have been done thus far. The remaining
works would be finalized within a year and the hotel become operational
in the month of December, 2012.
4. Beneficiaries of the Project

The major benefits include the following:-
 returns on investment
 supply of quality hotel and accommodation services
 tax to the government
 Foreign currency generation
 Job opportunity for productive and unemployed labor force and
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 Indirect benefits accrue to the country as a whole in the form of
generating potential investment capital.
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5. Project Rationales
The promoter, woy. Meseret Goshu is also owner of a tour and travel
business. As a means of forward business integration strategy she wants
to expand her business. The government privileged the sector by giving
duty free import of appliances & equipments and availing land.
The project is very near to the capital Addis Ababa, which is known, as
centre of Africa, the seat of diplomats, suitable condition for foreign
direct investment, and the attraction of tourists. Considering these
favorable market conditions, the promoter decided to construct a three
star hotel.
IV. ECONOMIC AND SECTOR REVIEW
1. Ethiopian Economy
The services sector of the country’s economy has—for the first time in
the history—overtaken agriculture as the largest segment of the
Ethiopian economy. This reverses a centuries-long economic structure,
wherein agriculture was the dominant sector, followed in a distant

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second place by the services sector, and lastly a very small industrial
sector. The recent release of FY 2008/09 GDP statistics, however,
revealed that the service sector is now clearly at top, comprising 45.1
percent of GDP, followed by agriculture at 43.2 percent, and Industry at
just 13.0 percent.
The customary shorthand description of the Ethiopian economy-as
being overwhelmingly agriculture-based-has thus just becomes
obsolete. The overtaking of agriculture by services is not some
statistical blip or a one-off occurrence linked to a particularly poor crop
season.
Agriculture has actually been overtaken by services at a time when crop
output reached a record level of 17.1 million tons. Indeed, for close
observers, the trend lines have been prevalent for almost a decade:
agriculture was more than 50 percent of GDP as recently as 2000/01 but
started a gradual decline over the past decade, falling to about 47
percent in the middle of the decade and to a low of 43.2 percent of GDP
most recently. The services share of GDP moved slowly but consistently

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in the other direction, moving up from just 38 percent at the start of the
decade to 45 percent of GDP most recently.

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As indicated in the above statistical data the service sector GDP
contribution in the overall economy has grown year after year in a
row.
2. Tourism and Hotel Sector
 Tourism
Global Trend-Multi-speed recovery
International tourism recovered strongly in 2010 according to the
Advance Release of the UNWTO World Tourism Barometer. International
tourist arrivals were up by almost 7% to 935 million, following the 4%
decline in 2009 – the year hardest hit by the global economic crisis. The
vast majority of destinations worldwide posted positive figures, sufficient

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to offset recent losses or bring them close to this target. However,
recovery came at different speeds and was primarily driven by emerging
economies.
Boosted by improved economic conditions worldwide, international
tourism has recovered faster than expected from the impacts of the
global financial crisis and economic recession of late 2008 and 2009.
International tourist arrivals were up by 6.7% compared to 2009, with
positive growth reported in all world regions. Worldwide, the number of
international tourist arrivals reached 935 million, up 58 million from 2009
and 22 million more than the pre-crisis peak level of 2008 (913 million).
While all regions posted growth in international tourist arrivals,
emerging economies remain the main drivers of this recovery. This
multi-speed recovery, lower in advanced economies (+5%), faster in
emerging ones (+8%), is a reflection of the broader global economic
situation and is set to dominate 2011 and the foreseeable future.

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The recovery in international tourism is good news, especially for those
developing countries that rely on the sector for much-needed revenue
and jobs.
Following a year of global recovery in 2010, growth is expected to
continue for the tourism sector in 2011 but at a slower pace. UNWTO
forecasts international tourist arrivals to grow at between 4% to 5% in
2011, a rate slightly above the long-term average.
Tourism Forecasts
The World Tourism Organization's long-term forecast and assessment
of the development of tourism up to the first 20 years of the new
millennium. An essential outcome of the Tourism 2020 Vision is
quantitative forecasts covering a 25 years period, with 1995 as the base
year and forecasts for 2010 and 2020.
Although the evolution of tourism in the last few years has been
irregular, UNWTO maintains its long-term forecast for the moment. The
underlying structural trends of the forecast are believed not to have
significantly changed. Experience shows that in the short term, periods

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of faster growth (1995, 1996, and 2000) alternate with periods of slow
growth (2001 to 2003). While the pace of growth till 2000 actually
exceeded the Tourism 2020 Vision forecast, it is generally expected that
the current slowdown will be compensated in the medium to long term.
The following graph shows the forecast.
UNWTO's Tourism 2020 Vision forecasts that international arrivals are
expected to reach nearly 1.6 billion by the year 2020. Of these
worldwide arrivals in 2020, 1.2 billion will be intraregional and 378
million will be long-haul travelers.

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The total tourist arrivals by region shows that by 2020 the top three
receiving regions will be Europe (717 million tourists), East Asia and the
Pacific (397 million) and the Americas (282 million), followed by Africa,
the Middle East and South Asia.
East Asia and the Pacific, Asia, the Middle East and Africa are forecasted
to record growth at rates of over 5% year, compared to the world
average of 4.1%. The more mature regions Europe and Americas are
anticipated to show lower than average growth rates. Europe will
maintain the highest share of world arrivals, although there will be a
decline from 60 per cent in 1995 to 46 per cent in 2020.

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Ethiopia with its diversified natural endowments can be one of those
main tourist attraction countries in the world.
The main features of the natural tourist attractions of the country are its
landscape with numerous scales of topographies, attractive rivers and
waterfalls, gorges, caves, rift valley, lakes, fauna and flora, monuments
and artifacts, and diverse ethnic and cultural blends. Being an ancient
country it has got rich history. The famous historical routes are Addis
Ababa, Bahir Dar, Gonder, Axum, Lalibela, Mekelle, Sof Oumer, Arba
Minch, Hawassa, etc. These areas are famous for monasteries, ritual
oblisks, manuscripts, castles, rift valley and lakes, monolithic stones, etc.
The archeological attractions are Haddar in Awash Valley, Melka Kontur,
Dilla and Dire Dawa areas. Ethiopia is the cradle of mankind where a four
million years old remains (Selam) has been recently found. The unique
character of the country are its attractive cultures and more than 80
ethnic groups having over 200 dialect, varied traditions and customs,
very interesting music, folk songs and dancing. In addition to this, Addis
Ababa is the centre of Africa, the seat of numerous diplomatic missions
and representatives of international organizations. It is a venue of many

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conferences and seminars and a home for thriving commercial
community.
Frommer’s Travel Guides, which has been offering the best tourist
destination sites for those planning the perfect travel excursion for the
last 50 years, posted on Frommer’s.com scoured the globe, and polled
its stable of authors and experts to identify twelve surprising, thriving, or
emerging travel destinations. Following this, Ethiopia is selected one of
the top ten travel destinations.
Former’s Travel Guides also disclosed Ethiopia as finally emerged out
of the shadows caused by year’s political strife, economic hardship, and
famine. The improved infrastructure has made travelling in Ethiopia
increasingly popular, especially for those seeking adventure. Ethiopia is
reverted for its rich history as one of the earliest Christian country, the
town of Axum which is the home of the ancient ark of the covenants as
well as the monolithic rock-hewn churches of Lalibelaare some of the
tourist attraction sites in Ethiopia. The country has a unique calendar of
its own and it has celebrated its own Millennium. The African Union
head of states on its summit decided the Ethiopian Millennium to be

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called as the African Millennium. This helps the country to promote its
tourism industry throughout the world.
Statistical report on most developing countries show that the demand
for facilities such as hotels, transportation, banking, insurance,
telecommunications, road, electricity, etc are rising and should assist the
growing tourism industry. It is, therefore, high time for the country to
develop and improve its tourist facilities to a level of internationally
acceptable standard.
 Hotel
Modern hotel Businesses in the country begin at the end of the 19th c,
particularly during the Emperor Minelik II period. At the end of 1890’s
a modern hotel was built with the name of “Taitu Hotel” with the aim
to serve the royal families, embassy workers, envoys and tourists. In
addition, Italian invention was contributed to the development of the
sector through the establishment of Italian owned hotels in major cities
and towns of the country. More specifically, they have started to
establish better equipped hotels in Addis Ababa Diredawa and other
towns with main objective of providing hotel services to the Italian

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armies and beside to this, to strength its colonial position by introducing
economic colonization. In addition, factors like the following contributed
towards the development of the sector:-
 The construction of Ethio-Djibouti railways
 The existence of various tourist sites
 The strengthening of Ethiopia’s foreign relations
 The increasing settlement of foreign citizens from countries like
Armenia, Greece, Italy, and India who all helped to bring
entrepreneurial capacity to develop the hotel services locally.
 The establishment of various international organizations such as AAU
and ECA in Addis Ababa which resulted in the increase in the
demand of conference tourism in the country.
Although the number of foreign travelers who were interested in the
natural, cultural, and historical attractions of Ethiopia had been
increasing from year to year since Mimili’s time (late 19th century),
tourism as an economic activity and important industry was given due
attention in the early 1960s. Thus, in Ethiopia, modern tourism activity
was started not more than 45 years ago.

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Accordingly, the first tourist organization was established in 1961 and
consequently, to develop tourism and attract investors in the sector, the
Imperial Government promulgated a decree in 1962. The main objective
of the decree was to initiate private investment in tourism sector. At this
time, tourism infrastructure was very poor and there were inadequate
number of hotels to accommodate tourists. Therefore, the Imperial
government emphasized in building hotels and other infrastructure.
With this view, government established various hotels and resorts in the
capital city and major tourist attraction areas. The Hilton Hotel, Ras
hotel, Ethiopia hotel and Gihon hotel counts among the hotel chains
established in the capital and major tourist areas of the country during
the Imperial Hailessellassie era. During this period, tourism and hotel
business was in the process of rapid expansion.
However, because of the change of government in 1974, the rapid
growth of tourism had been hindered significantly. Even during this
period, though several efforts were made to develop the tourism sector,
due to the government’s ideology, the sector’s performance was left
behind the pre 1974 period. Therefore, the performance of tourism and

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hotel Business during the military regime had been disappointing, owing
to the hostile environment for international tourists, restrictions imposed
on private sector participation, low level of investment on tourism
promotion and development, inadequate tourist facilities and poor
transport and other infrastructure (Survey of Tourism, 1998; MEDaC, 1999). All
these factors accounted for the poor performance of the sector in terms
of tourist flows, foreign exchange generation, and job creation.
Finally, the military government issued ‘mixed economic policy’ in
1989 and the private sector was invited to participate in tourism
business.
In 1991, after the collapse of the military government, a transitional
government was established and it campaigned for the shift from
command economy to free market economy. This change of economic
policy further encouraged the participation of private investment that
was already started because of the mixed economy in 1989.
Consequently, the government introduced reforms in the tourism sector
and Ethiopia was open for tourists from all parts of the world.

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The new policy allows the participation of private investors in the
tourism sector. As a result, several private tour operators and travel
agencies have been established. Accordingly, the hotel sector became
one of the beneficiaries of the new economic policy. Thus, there is a
relatively conducive investment opportunity in hotel industry and the
trend shows that tourism will be one of the main contributors to the
balance of payments as well as pro-poor economic growth opportunities
in the future. Thus, the very intent of this project is to take advantage of
this opportunity and expand and improve the existing hotel business
near to the most vibrant and growing city (ADDIS ABABA).
V. MARKET- DEMAND & SUPPLY ANALYSIS AND STRATEGY

To undertake the demand and market analysis both primary and
secondary data was collected from primary and secondary sources. The
primary data was collected by personal observation, and interviewing
administrators, contractors, investment bureau employees, customers
and different peoples who work in similar business in Addis Ababa.
Secondary data was collected from governmental institutions such as
investment office, ministry of tourism and culture. These collected

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information are about market potential and shares, demand of
community for both satisfied and unsatisfied portions, pricing strategies
and related impacts on the raw material and their suppliers ,business
environments (location) influences form both internal and external etc.
A. Customers /Target market
In light of market research and previous experience of other businesses
in the industry, our target markets are tourists, transit tourists and Addis
Ababa residents. The detail description of our target market is listed as
follows:
Foreign tourists: - the existence of many tourist attraction sites of the
country in general and that of the city in particular are attracting a large
number of tourists to the country. Hence, these tourists prefer our hotel
services since they demand international standard high quality hotel
services.
In addition, participants of international conference (seminars), business
travelers, transit passengers, foreign diplomats, officials of different
international organizations, NGOs and Ethiopian diasporas who came

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home for different reasons are the users of our hotel services. Based on
the information obtained from the Ethiopian tourism commission, the
number of tourists visiting Ethiopia is growing fast from year to year.
Residents of Addis Ababa (local tourists):- The hotel is located at
Sebeta town which is the nearest suburb of the capital Addis, where
most of expatriates, Diasporas, icon business men and high rank
politicians are residing. Hence, they are one of targeted customers of the
hotel.
B. Demand and Supply Gap Analysis
Demand
Ethiopia is endowed with unique cultural heritages, striking scenery,
favorable climate, rich flaura fauna, as well as important archeological
sites. These blessings coupled with the government’s initiative to
promote the tourist attraction centers demanded the country to invest
on hotel constructions as more tourist arrival is expected in the future.
The capital -Addis Ababa is the venue of Africa being the seat of many
international and regional organizations including UN-ECA, AU, over 90

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permanent residents of diplomatic missions and direct and indirect
representative offices.
These diplomatic missions and organizations used to organize regular
and extraordinary meetings. Participants require standard
accommodation services and meeting places in the capital.
As it is well known, there are a number of factors affecting the demand
of hotel catering service. Mainly the factors are disposable income of the
population, its size, willingness and preference of the customer, quality
and availability of competitors in the sector. There are also implicit
factors attributable to the general political, economical and social
activities of the country in general and the city in particular.
In such circumstances, it is difficult to know the exact magnitude of
demand especially for local customers and hence what could be worked
out is a demand forecast based on historical tourist’s inbound trend to
Ethiopia. [[
Per ‘Ethiopian Tourism Commission ‘statistical abstract of the year
2008, (recent issue).

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 The actual International tourist arrivals to Ethiopia for the year 2008
were 383,399.
 An average annual growth rate of 7.9% over the next 10 years is
expected.
 A few numbers of domestic customers and domestic resident
diplomatic missions would use the services. For this project
purpose, it is assumed that about 10% of the number of tourists is
billed to the expected number of domestic customers-own
estimate. Based on the above facts and figures, the tourist forecast
for the coming 10 years is presented below.
Projected Tourists Inbound, Customers (Ethiopians Total Expected

7.9% growth rate per annum and Foreign residents) no. of customers
Project life Year A B =A x 0.1 C= A+B
Actual 2,008 383,399 383,399
2,009 413,688 41,369 455,056
2,010 446,369 44,637 491,006
2,011 481,632 48,163 529,795
1 2,012 519,681 51,968 571,649
2 2,013 560,736 56,074 616,809
3 2,014 605,034 60,503 665,537
4 2,015 652,831 65,283 718,115
5 2,016 704,405 70,441 774,846
6 2,017 760,053 76,005 836,058
7 2,018 820,097 82,010 902,107
8 2,019 884,885 88,489 973,374
9 2,020 954,791 95,479 1,050,270
10 2,021 1,030,219 103,022 1,133,241

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There would be from minimum 571 thousand to maximum 1.1 million
tourist arrival in the years between 2012-2021.
Supply Analysis
Ethiopia has a limited supply of Star and tourist standard hotels and
accommodations. The existing star hotels in the country are highly
slanted towards the capital city. Hotel and accommodation service in
Ethiopia is characterized by among others, the following features:
 Low educational qualification and training system,
 Poor service quality and limited domestic consumption,
 Limited supply of star hotels and over-pricing of the existing hotels
for what they offered
 Lack of hotel plain rating system, which prevents the existing licensing
authority from downgrading them,
 Less access to market information and poor infrastructure,
Supply of hotels service is not a mere forecast of the number of available
rooms, it includes assessment of establishment and constructions,
expansions, quality of the service and factors that deal with the process
of service delivery.

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The distribution of tourist class hotels by Region:
REGIONAL STATES NUMBER OF HOTELS Rooms Beds

1- ADDIS ABEBA 88 4449 5916
2- AFAR 9 174 221
3- AMHARA 66 1781 2429
4- BENSHANGUL 6 122 133
5- DIRE DAWA 16 551 712
6- GAMBELA 4 61 85
7- HARARI 9 251 314
8- OROMIA 115 3083 3706
9- SOMALI 11 215 245
10-SPNN 70 1661 1910
11-TIGRAI 43 1335 1546
12-TOTAL 437 13,683 17,217
Source: Ministry of Culture & Tourism Statistical Bulletin, 2008
As shown in table above the total number of star hotels room in Ethiopia
in the year 2008 is only 13,683 out of which 4,449 are found in Addis
Ababa. Including the recommended and unclassified hotel rooms, the
national supply of rooms and beds is 13,683 and 17,217 respectively.
From this magnitude, Addis Ababa shares 4,449 rooms and 5,916 beds.
The number of rooms and beds are not similar because of existence of 2
beds in one room, which is commonly referred as double bedrooms.

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However, each and every double bedroom wouldn’t necessarily be
occupied by two customers; a single occupant could use a double
bedroom. To ease this confusion, an average number of the beds and
the rooms would be applied in the forecast.
As the supply analysis should include additional investment activities in
the sector either in the form of expansion or new projects, the
investment on hotel projects for the past years (1992-2006) is shown in
the table below.
Hotel Investment projects implementation rate
Status of the Projects National Level Addis Ababa Implementation

Rate in %
No of Registere No Registered Addis
Projects d Capital of Capital National Ababa
In billion Projects In billion of Level
of Birr Birr
Pre -implementation 874 4.6 201 2.6 97.3 89.5
Under implementation 24 0.095 21 0.075 2.7 10.5
Source: Ethiopian Investment Agency
As the above table tells us, the implementation rate is very weak. From
the licensed 201 hotel projects with investment capital of Birr 2.6 Billion,

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only 10.5 % were under implementation for Addis Ababa Projects. The
national level is worse, as it is only 2.7% is under implementation from
874 licensed projects.
In order to indicate future growth in supply of the hotel service, the
implementation rate of the licensed projects, which is 10.5% is applied in
the supply projection
Trend based assumptions for supply projection.
 The average number of bed and rooms of all starred,
recommended and unclassified hotels of the year 2008 in Addis
Ababa is taken as the base year data,
 Hotel bedroom supply would grow at the rate of 10 % per annum-
implementation rate
 On average tourists stay only a single week in Addis Ababa,
 Even though tourists have their star preference, and the
comparison shall be made for similar stars, it is assumed that all
starred hotels, unclassified and recommended ones are taken as
equal competent of the hotel project at hand.

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Assuming 10% growth rate per annum in supply side, the forecasted
supply of hotels bedrooms in the coming 10 years (2012-2021) is shown
in table below.
Hotel bedrooms supply projection.

Project Average Number of tourists
period Bed Number A single bed that can be served
Number Night/Tou of Days in serving capacity of with the existing
Year of Beds rist a Year customer /year Beds/Annum
0 A B C D=C/B E =A x D
Actual 2008 5,916 7 365 52 308,477
0 2009 6,508 7 365 52 339,325
0 2010 7,158 7 365 52 373,257
0 2011 7,874 7 365 52 410,583
1 2012 8,662 7 365 52 451,641
2 2013 9,528 7 365 52 496,806
3 2014 10,481 7 365 52 546,486
4 2015 11,529 7 365 52 601,135
5 2016 12,681 7 365 52 661,248
6 2017 13,950 7 365 52 727,373
7 2018 15,345 7 365 52 800,110
8 2019 16,879 7 365 52 880,121
9 2020 18,567 7 365 52 968,133
10 2021 20,424 7 365 52 1,064,947
Based on the employed trend and assumption, available bedrooms in
the city could serve from the minimum 451 thousand tourists (in 2012)
to the maximum 1 million tourists (in 2021), with an annual capacity

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growth rate of 10%. The growth in tourist handling capacity would be
obtained from expansion of existing ones and due to new entrants.
Demand Gap
Demand –Supply- gap of hotel accommodation service for 10 years.

Year Demand No. Of Supply Capacity Excess /Demand
Customers who need No of customers No. of customers
Hotel accommodation that the available who do not get hotel accommodation
service bedrooms could serve service
2008 383,399 308,477 74,922

2009 455,056 339,325 115,731
2010 491,006 373,257 117,748
2011 529,795 410,583 119,212
2012 571,649 451,641 120,008
2013 616,809 496,806 120,004
2014 665,537 546,486 119,051
2015 718,115 601,135 116,980
2016 774,846 661,248 113,598
2017 836,058 727,373 108,686
2018 902,107 800,110 101,997
2019 973,374 880,121 93,252
2020 1,050,270 968,133 82,137
2021 1,133,241 1,064,947 68,295
As shown above, among the expected number of tourist-customers and
local customers (Ethiopians and foreign residents), from the maximum
120 thousand (2012) to the minimum 68 thousand (2021) of them

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wouldn’t get accommodation service in the considered starred and
recommended as well as unclassified hotels.
This would be a good opportunity for investors to enter the market in
the sector
C. Conclusion
The demand and supply gap presented above shows the true reflection
of hotel and accommodation service need in Addis Ababa. If someone
wants to arrange a meeting, or get a standard resting room in Addis
Ababa, he is expected to book two weeks or three weeks earlier than the
event. The demand supply gap also tells us that unless investment in the
sector has been made at a faster rate than the rate used in the growing
trend of world tourism industry. To attract more tourists the number of
investment being made has to be increased. The government is
encouraging investments being made in the sector so as to curb the
shortage.
NB. So far there is no tourist standard hotel in Sebeta. Because of its proximity to
Addis the data considered for the analysis is that of Addis Ababa.

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D. Marketing Strategy
Product or service marketing is a fundamental job in business operation.
The services to be offered should be properly marketed so as to achieve
the desired market share. The marketing techniques to be followed are
using the proper mixing up of the four marketing techniques.
1. Price of the Services
The hotel is being constructed to fulfill the standards of a three star
hotel. Hence, the service price is to be taken in a three star hotel
standard. In order to get the desired market share, however, the prices
for the hotel services shall be set at a lower price than expected.
Depending on the market response to the services and the price,
periodical revision of service price is taken into consideration.
2. The Services to be Offered
The hotel will provide all the hotel services expected in a three star hotel.
It will give foreign exchange service, business centers, sporting facilities,
accommodation, and restaurant and bar services in a pleasant
environment.

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3. Promotion
Promotion is vital for any business. The services of the hotel should be
advertised through the electronic and print Medias. The hotel will also
develop its existing and new marketing links with touring companies,
international organizations, and Airliners. The hotel’s name will be
printed in a specialized news papers such as Selamta, the Ethiopian
Tourism and Culture Ministry publications. Sponsoring of events,
conferences and symposiums will also be the other techniques to
promote the hotel.
4. Competitor’s Price Analysis
The proposed hotel project is going to operate with a high class hotel
standard, it is, therefore, ready to identify and monitor the price of its
competitors to gain and maintain the loyalty of the market. The best way
for the project to grasp its competition is to take into account the taste
and behavior of the customers.

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Price is the only element in the marketing mix that creates sales revenue.
It is, therefore, important to set reasonable price for all services by
paying keen attention to cost, demand and competition:-
To determine the price of the services we will:
 Assess the operating cost of the service
 Taking into account demand intensity and customers psychology
 Assess the price range and price movement of the hotel through time
to support sales and profit objective and marketing positions in the
target group.
 The current bed room renting price in Addis Ababa is very diverse even
among hotels with similar star. This is mainly due to the non-
standardized nature of the service.
In order to analyze and propose the room price of the envisaged hotel,
five similar three star standard hotels were selected and examined.
Even though, foreigners are charged higher than the nationals, for the
purpose of this analysis the least price is considered. The least room
prices for single bed room are shown below.

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Minimum Room charge for three star hotels in Addis Ababa
Hotel Currency Room Charge VAT exclusive Ex. Rate Equivalent Birr
Harmony Hotel $ 71 17.5 1,242.50
Dream liner Hotel $ 68 17.5 1,190.00
KZ Hotel $ 98 17.5 1,715.00
Kaleb Hotel $ 63 17.5 1,102.50
Riviera Int. Hotel $ 65 17.5 1,137.50
Average Charge 73 17.5 1,277.50
In light of the above and the facilities availed to the bed rooms, our
opinion is the proposed hotel room price would be able to fetch at least
similar with the least priced hotels in Addis Ababa which have the same
three star standard hotels. Based on this, we suggest that the room price
per night for standard bed rooms, is assumed to be initially at Birr 1250.
VI. TECHNICAL ANALYSIS
1. Land and Location

The project is located in Sebeta town at wolete site- a suburb to south
west of Addis showing fastest growth. The project site is adjacent to
main road stretched between Addis and Sebeta. A leased land area of
927 square meters allocated for the hotel project is adequate to
accommodate the hotel building with its facilities and enough for
parking spaces.

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2. Infrastructures
The project area is designed by professional engineers. The building
designed was taken keen attention for architectural, structural, sanitary
and electrical layouts. The project site is availed with water, electrical
light and power with excellent access road. With regard to electric power
and water however, the project requires additional line for estimated
cost of birr 150,000.
3. Service Capacity
The Hotel is designed to rank a three-star hotel. It is planned to cater all
hotel facilities. The building floors are designed to give different
services as detailed in the table below.

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No. Floors Use remark
1 Basement Laundry, Kitchen and restaurant The restaurant will at

least hold 120 people at
a time.
2 Ground Supermarket, Café and Supermarket will be

rented out
reception
3 first Shops and offices 4 shops and 4 office will

be rented
4 second 7 Bed rooms Well furnished rooms

with Jacques’ service
5 third 7 Bed rooms Same as above.
6 fourth 7 Bed rooms Same as above
7 fifth Hall (304 sq.metter) 500 persons holding

capacity
Capacity
Assuming pre-marketing period, the hotel is assumed to work in the

capacity of 60%,70%,80% and 90% in the 1st,2nd,3rd and 4th and
thereafter years, respectively.

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VII. ORGANIZATION AND MANAGERMENT
1. Organization Structure
Structuring is an internal arrangement of an organization to achieve the
optimum arrangement of functions among many possible alternatives.
In order to make the structure efficient and cost effective there are a
number of management principles and logical parameters by which the
process of structuring should be governed.
In the current competitive business environment the hotel business
needs a simple functional structure that can respond and adapt to
rapidly changing market conditions. The structure should fit the
envisaged project’s objectives.
Thus the structure should accommodate the following points:
 Start up operation should follow the phase from simple to complex
based on market growth,
 Organizational growth must be anticipated in the future and this
should be reflected in the structure, and
 The structure must consider the ability to pay for employees.

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There are different types and approaches in structuring an organization.
The following are some of the commonly used approaches:
 Functional Organization,
 Product or market oriented organization structure, and
 Matrix organization structure.
Whatever organizational structure is chosen the essential points in
structuring should consider the organization’s strategy. To achieve the
objective set to it, what is needed for the hotel is a structure that could
enable it to be agile and responsive to environmental changes. Thus,
simple functional structure with low complexity and normalization is
necessary for the hotel to be successful in achieving its objectives and
solving problems.
Departments:-Based on the principles mentioned above, the hotel will
be organized based on a simple functional organization structure
principle. The hotel will have three departments and one service unit
under the hotel manager. The hotel manager will be professional in
Hotel management who will be authorized fully to run the hotel with
standards set for three star hotels.

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The three department managers will also be professional in their
respective area. Under the departments there will be sections. The
functional departments are Administration and Finance, Front Manager
and Market development and promotion managers.
Sections:-Under the Finance and Administration Department Manager
there will be accounts section and chief casher. The Front Operation
Department is responsible for food and beverage section,
accommodation and cleaning sections. Food and beverage section is
responsible for the supply of foodstuffs and beverages. This department
is also responsible for kitchen, beverage and “baresta” operations. The
organizational structure of the hotel is pictorially shown below.

[[[
ORGANZATION STRUCTURE
GENERAL MANAGER
AUDITOR LEGAL
ADVISOR
HOTEL MANAGER
SECRETARY
MARKET DEVELOPMENT & FRONT OPERATION DEPT. FINANCE & ADM, DEPT.
PROMOTION.
Food & Beverage Section

Accounts Chief
Accommodation &
Section Cashier
Cleaning Section
2. Management and Human resource

The Hotel will be run by a hired manager who has experience in
managing well recognized hotels. The department managers will also be
competent and experienced managers.

[[[
The hotel manager will be fully responsible for the day to day operation
of the hotel. The responsibility of the owner/General Manager will be
limited to the hiring and firing of the hotel manager, and determination
of the hotel manager’s remuneration. They will also review and
approve the budget and performance of the hotel. This mode of
management system enables the hotel to attain a three star hotel
standard which is one criterion for grading.
The manpower needs of the hotel project and the related salary &
benefits payments for professional as well as support staff is presented
in the following table.
The salary scale will be made based on a three-star hotel standard.

[[[
Manpower requirement and salary of the Hotel project
No Position No. of Employees salary /month Annual pay
1 General Manager 1 8,000 96,000

2 Department Managers 3 5,000 180,000
3 Secretary 1 2,000 24,000
4 Head Accounts 1 3,500 42,000
5 Accounts Clerks 2 1,500 36,000
6 Cashiers 3 1,200 43,200
7 Receptionist 6 1,000 72,000
8 Auditor 1 2,000 24,000
9 Purchaser 1 2,000 24,000
10 Store keeper 1 1,500 18,000
11 Laundry man 6 1,000 72,000
12 Bar man 9 800 86,400
13 Head-waiters 3 1,000 36,000
14 Waiters 18 600 129,600
15 Chief cook 3 3,500 126,000
16 Cookers 12 2,500 360,000
17 Bill boy 3 800 28,800
18 Electrician 1 1,500 18,000
19 Plumber 1 2,000 24,000
20 Sales promotion expert 2 1,500 36,000
21 Telephone operator 3 1,200 43,200

22 Property Administrator 3 1,200 43,200
23 Cleaners 12 500 72,000
24 Guards 9 500 4,500
Total 105 1,638,900
20% staff benefit * 327,780
Total 1,966,680
*includes 7% pension.
As shown above the project will have a total of 105 employees working
at different level. Including 20% staff benefit, the annual salary to be
paid is about 2 million. This will grow by 5% per annum.

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VIII. FINANCIAL ANALYSIS
1. Investment cost and financing structure

The total investment cost of the hotel project is estimated to be Birr
26,197,524. The cost breakdown and financing structure is shown below.
Initial Investment Cost & financing structure

Equity Finance Bank Finance
%
Description Total cost age Value % age Value
Land Lease Payment 101,149 100% 101,149 0% -
Hotel building 7,000,000 30% 2,100,000 70% 4,900,000

Equipment &
Furniture, machinery,
utensils 13,232,109 25% 3,308,027 75% 9,924,081
Soft furnishings-
Mattress, pillow, etc 1,188,324 30% 356,497 70% 831,827
Vehicles 2,809,999 30% 843,000 70% 1,966,999

Pre-operating
Expenditure 200,000 100% 200,000 0% -
Total fixed investment 24,531,581 28% 6,908,673 72% 17,622,907
Pre-operating Interest 1,079,656 100% 1,079,656 0% -
Initial Working Capital 586,287 30% 175,886 70% 410,401

Total Equity & Bank
Finance 26,197,524 31% 8,164,215 69% 18,033,308
As indicated on the table above 30% or Birr 8,164,215 of the hotel
project will be financed by the project promoter and the remaining 70%
or Birr 18,033,308 is expected to be covered by long term bank loan
repayable quarterly within eight years after one year grace period.
[[[
2. Revenue Projection at full capacity
The revenue sources are bedroom charge, food and beverages and
rental income from hall, offices and shops. The total income from each
service and related assumptions are presented below.
 The room charges are computed based on the competitive charges
of three star hotels in Addis Ababa.
 In determining the charges an exchange rate of birr 17.50 for a unit
of USD is used.
 The restaurant is estimated to accommodate a maximum of 120
customers at a time.
 All of the customers will be served meal at least one and 80
customers will be served beer, 15 Alcohols, and the remaining 25
customers will use soft drinks.
 Average price per meal is assumed to be birr 200.
 Another source of income the hotel can collect is from rent. The
hall can occupy 200 people at a time assuming it will be rented at
least once in a month at a charge of Birr 10 per person the annual
income from hall rent will be birr 24,000.

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 There will be 8 rooms designed for Shops and offices each of the
rooms will have an area of 45 square meters. The monthly rent
income per meter square is birr 150. Thus, the annual rent is Birr
648,000.
The revenue breakdown is shown in the following successive
tables.
Bedroom Service Revenue

No. of
Bedroom type rooms Charge/bed/night Days Total
Standard bed rooms 21 1,250 365 9,581,250
Breakdown of beverage-revenue
Beverage type customers quantity in take price days total revenue
Beer 80 4 25 365 2,920,000
Alcohols 15 2 20 365 219,000

soft drinking
/water 25 2 10 365 182,500
Total 120 3,321,500
Breakdown food-revenue
No. of customers Average price /meal days in year total revenue
120 200 365 8,760,000

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Rent Revenue
Area of Each Rent per m.sq
Type room No. of rooms /month Total Rent
Office & shops 45 8 150 648,000

200 people @Birr 10 once in a month
Hall rent 24,000
Total 672,000
Revenue summary
Total Revenue at full capacity
Description/Year 0
Occupancy Rate 100%
Room charge 9,581,250
Foods and Beverage 12,081,500
Rents 672,000
Total Revenue before VAT 22,334,750
The annual total revenue from all service at full capacity is Birr 22.33
million. Out of which birr 9.5 million is from bedroom service, Birr 12
million from food and beverage and the remaining birr 0.67 million is
from rent.
3. Operating Costs
The annual expenditure on service cost is computed based on the
following assumptions.

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 Food ingredients costs 30% of food sales revenue,
 Salary expense is assumed to increase by 5% per annum.
 Beverage cost is also assumed to be 30% of revenue from the source
 Repair and maintenance is 0.05 % of fixed investment
 Utility expenses are estimated to be 1% of total sales
 Property insurance is 0.1% of fixed investment.
 Transportation expense is assumed to be birr 50,000 per annum.
 Land lease is birr 7,771 per annum.
 communication expenses like telephone, telex, fax, internet, etc are
assumed to be birr 100,000 per annum
 Miscellaneous expense of un usual nature birr 25,000
 Cleaning costs are estimated to be birr 25,000 per annum
 Marketing expense of birr 50,000 per annum is assumed
 Auditing fee of birr 7,000 is considered.
 Corporate tax of 30% on taxable profit.
 Discount rate of 9.5 %
 Interest rate of 9.5% on bank loan.

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 Cost recovery rate at the end of the project life is 50%, 10%, 5% and
100% for buildings, and hotel items (equipment machinery, furniture,
and utensils kitchen), for soft furnishing and initial working capital,
respectively. Operating cost summary prepared based on the above
assumptions is presented below.
Year, 1-5
Capacity Utilization 100% 60% 70% 80% 90% 90%
Description/Year 0 Year-1 Year-2 Year-3 Year-4 Year-5

Foods and Beverage 3,624,450 2,174,670 2,537,115 2,899,560 3,262,005 3,262,005
Salary Expense 1,966,680 1,966,680 2,065,014 2,168,265 2,276,678 2,390,512
Repair & Maintenance 12,115 12,115 13,327 14,659 16,125 17,738
Utility Expenses 22,335 134,009 156,343 178,678 201,013 201,013
Property Insurance 48,461 48,461 50,884 53,428 56,100 58,904
Transportation 50,000 30,000 35,000 40,000 45,000 45,000
Land Lease(2) 7,771 7,771 7,771 7,771 7,771 7,771
tele, fax, & stationery 100,000 60,000 70,000 80,000 90,000 90,000
miscellaneous expense 25,000 15,000 17,500 20,000 22,500 22,500
cleaning cost 25,000 15,000 17,500 20,000 22,500 22,500
Marketing Expenses 50,000 50,000 55,000 60,500 66,550 73,205
auditing fee 7,000 7,000 7,700 8,470 9,317 10,249
Operating Cost Before Dep. 5,938,812 4,520,706 5,033,154 5,551,331 6,075,559 6,201,397
Depreciation 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Total Operating Cost 9,093,504 9,605,952 10,124,129 10,648,356 10,774,195

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Year6-10
Capacity Utilization 90% 90% 90% 90% 90%
Description/Year Year-6 Year-7 Year-8 Year-9 Year-10
Foods and Beverage 3,262,005 181,440 181,440 3,262,005 3,262,005
Salary Expense 2,510,037 2,635,539 2,767,316 2,905,682 3,050,966
Repair & Maintenance 19,512 21,463 23,609 25,970 28,567
Utility Expenses 201,013 - - 201,013 201,013
Property Insurance 61,850 64,942 68,189 71,599 75,179
Transportation 45,000 45,000 45,000 45,000 45,000
Land Lease(2) 7,771 7,771 7,771 7,771 7,771
tele, fax, & stationery 90,000 90,000 90,000 90,000 90,000
miscellaneous expense 22,500 22,500 22,500 22,500 22,500
cleaning cost 22,500 22,500 22,500 22,500 22,500
Marketing Expenses 80,526 88,578 97,436 107,179 117,897
auditing fee 11,274 12,401 13,641 15,005 16,506
Operating Cost Before Dep. 6,333,987 3,192,134 3,339,403 6,776,224 6,939,904
Depreciation 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
[
Total Operating Cost 10,906,785 7,764,932 7,912,200 11,349,022 11,512,702
4. Depreciation and amortization

Depreciation and amortization expenses are computed as below.
Depreciation and Amortization Schedule

Cost Item Original Cost Rates App. dep/ annum
Building 7,000,000 5% 350,000
Equipment & Furniture, machinery, utensils 13,232,109 20% 2,646,422
Soft furnishing 1,188,324 33% 392,147
Land leased 101,149 20% 20,230
Vehicles 2,809,999 20% 562,000
Pre-operating Expenses 200,000 20% 40,000
Generator 2,809,999 20% 562,000
Total Depreciation Value 27,341,579 4,572,798

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5. Initial Working capital
The working capital has been determined as given in the following table.
Accordingly, the initial working capital requirement is estimated to be
Birr 586,287 and the subsequent working capital need will be generated
from the service itself.
Initial Working Capital Determination

Cost Items/Year coverage Amount
Food & Beverage 60 days 357,480
Salary & Benefit 30 Days 163,890
Utility Expenses 30 days 11,167
Transportation 30 days 2,500
cleaning cost 30 days 1,250
Marketing Expenses annual 50,000
Total 586,287
6. Financial Results
Based on the assumptions made on expected revenue and associated
operating expenses, the following financial projects were prepared:
 Profit and loss statement,
 Cash flow statement,
 Discounted cash flow statement,
 Loan repayment schedules
 Sensitivity Analysis

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Based on the above financial projections, the following results have been
deduced to help investors for their investment decision,
Profitability
Assuming the capacity will increase by 10% per annum starting from
60% in the first year until it reaches maximum of 90% in year four and
hence forth, the project is profitable staring from the first year of
operation. Profitability increases from the first year to tenth years
constantly. Operating expense is assumed to be increased yearly with
the assumptions provided above except depreciation and interest on
bank loan which are fixed by nature.
The profit and loss statement is shown in two subsequent tables.
Year 1-5
Projected profit/Loss Statement

Revenue 13,400,851 15,634,326 17,867,801 20,101,276 20,101,276
Total Cost Before Dep & Int 4,520,706 5,033,154 5,551,331 6,075,559 6,201,397
Gross profit 8,880,145 10,601,172 12,316,470 14,025,717 13,899,879
Depreciation Expense 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Interest expense 1,646,454 1,458,443 1,251,926 1,025,079
Total Depreciation and int 4,572,798 6,219,252 6,031,241 5,824,724 5,597,877
Net Income 4,307,347 4,381,920 6,285,228 8,200,994 8,302,003
Less Profit Tax 1,292,204 1,314,576 1,885,568 2,460,298 2,490,601
Net Income After Tax 3,015,143 3,067,344 4,399,660 5,740,696 5,811,402

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Year 6-10, continued
Projected profit/Loss Statement

Revenue 20,101,276 20,101,276 20,101,276 20,101,276 20,101,276
Total Cost Before
Dep & Int 6,333,987 3,192,134 3,339,403 6,776,224 6,939,904
Gross profit 13,767,289 16,909,142 16,761,873 13,325,052 13,161,372
Depreciation
Expense 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Interest expense 775,901 502,195 201,546
Total
Depreciation and
int 5,348,699 5,074,993 4,774,344 4,572,798 4,572,798
Net Income 8,418,590 11,834,148 11,987,529 8,752,254 8,588,574
Less Profit Tax 2,525,577 3,550,245 3,596,259 2,625,676 2,576,572
Net Income After
Tax 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002
As shown from the tables above the profit ranges from birr 3 million in
the first year to birr 6.0 million in the tenth year.
Net present Value and internal Rate of Return
Cash Flow statement for Discounting

Description/Year Year -0 Year -1 Year -2 Year -3 Year -4
Net Income 0 3,015,143 3,067,344 4,399,660 5,740,696
Depreciation and
Amortization 4,572,798 4,572,798 4,572,798 4,572,798
Working Capital Recovery - - - -
Salvage Value - - 59,416 -
Interest expense 1,646,454 1,458,443 1,251,926
Total Cash Inflow 0 7587940.89 9286595.749 10,490,317 11,565,419
Initial Investment Cost 26,197,524
Replacements - - 1,307,156 -
Loan repayments - 1,909,931 2,097,941 2,304,459
Total cash outflow 26,197,524 - 1,909,931 3,405,098 2,304,459
Net cash flow (26,197,524) 7,587,941 7,376,665 7,085,219 9,260,960
NPV@9.5% 26,689,482
IRR 29%

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Cash Flow statement for Discounting
Description/Year Year -5 Year -6 Year -7 Year -8 Year -9 Year -10
Net Income 5,811,402 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002

Depreciation and
Amortization 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Working Capital Recovery - - - - - 586,287
Salvage Value - 65,358 - - 71,894 4,898,528
Interest expense 1,025,079 775,901 502,195 201,546 - -
Total Cash Inflow 11,409,278 11,307,070 13,358,897 13,165,615 10,771,269 16,069,615

Initial Investment Cost
Replacements - 1,437,872 - - 1,581,659 -
Loan repayments 2,531,306 2,780,484 3,054,190 3,354,913 - -
Total cash outflow 2,531,306 4,218,356 3,054,190 3,354,913 1,581,659 -
Net cash flow 8,877,972 7,088,714 10,304,707 9,810,702 9,189,610 16,069,615
The discounted cash flow statement shows that the project will accrue a
net present value of Birr 26.6 million and its internal rate of return will be
29% where the decision criterion is invest whenever the NPV is above
zero and the IRR is above rate, which is 9.5% percent.
Liquidity
The project will generate positive cash flows staring form the first year.
Covering all of the costs and expenses, the hotel will be benefited from
excess cash. The accumulated excess cash flow will also cover the cash
needs for further investment. The following subsequent tables show the
figure.
Cash flow projection for planning purpose.

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Year 0-5
Cash Flow Statement For Financial Planning purpose

Description/Year Year-0 Year-1 Year-2 Year-3 Year-4 Year-5
Net Income 3,015,143 3,067,344 4,399,660 5,740,696 5,811,402
plus Dep % Amor 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Equity 8,164,215
Bank Loan 18,033,308
Working Capital Recovery

Salvage Value
building
equip, mach. furn
soft furnishing 59,416
Total cash Inflow 26,197,524 7,587,941 7,640,142 9,031,874 10,313,494 10,384,200
Initial Investment Cost 26,197,524

Principal loan repayment 1,909,931 2,097,941 2,304,459 2,531,306
Replacement
soft furnishing 1,307,156
Total cash outflow 26,197,524 - 1,909,931 3,405,098 2,304,459 2,531,306

Net cash inflows - 7,587,941 5,730,211 5,626,776 8,009,034 7,852,894
Cumulative cash inflow 7,587,941 13,318,152 18,944,928 26,953,962 34,806,856
Year 6-10
Cash Flow Statement For Financial Planning purpose

Net Income 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002
plus Dep % Amor 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

Equity
Bank Loan
Working Capital Recovery 586,287
Salvage Value
building 3,500,000
equip, mach. furn 1,323,211
soft furnishing 65,358 71,894 75,317
Total cash Inflow 10,531,169 12,856,702 12,964,069 10,771,269 16,069,615

Initial Investment Cost
Principal loan repayment 2,780,484 3,054,190 3,354,913

Replacement
soft furnishing 1,437,872 1,581,659
Total cash outflow 4,218,356 3,054,190 3,354,913 1,581,659 -
Net cash inflows 6,312,813 9,802,512 9,609,156 9,189,610 16,069,615
Cumulative cash inflow 41,119,669 50,922,181 60,531,337 69,720,947 85,790,562

[[[
The cumulative cash balance will reach birr 85.79 million at the end of
the project life.
Pay Bank period
The pay bank period of the project is between year 3 and 4 which is very
short.
7. Sensitivity analysis
Under different sensitive analysis the project is profitable. For example,
the price of each service decreases by ten percent, the NPV will reduce
to 19 million and its IRR will be 24%. When investment costs are
increased by ten percent, the NPV will reduce to Birr 24 millions and its
IRR will be 26%.
To conclude the project will be affected by fluctuations in service price,
investment cost and operating costs. However, the response in
profitability level is insignificant and able to absorb the possible shocks.
Sensitivity Analysis
NPV.'000' IRR
Base result 26 29%
Investment cost increase by 10% 24 26%
operational cost increase by 10% 25 28%
Revenue decreased by 10% 19 24%

[[[
Loan Amortization -Table
Loan amount 18,033,308 quarterly repayment 889,096 after one year grace period
Loan amortization For five years with quarter payment after 1 year grace period
Quarters loan interest principal T. payment O/s balance. Int/year

1 18,033,308 428,291 428,291 18,033,308
2 18,033,308 428,291 428,291 18,033,308
3 18,033,308 428,291 428,291 18,033,308
4 18,033,308 428,291 428,291 18,033,308 1,713,164
5 18,033,308 428,291 460,805 889,096 17,572,503
6 17,572,503 417,347 471,749 889,096 17,100,754
7 17,100,754 406,143 482,953 889,096 16,617,801
8 16,617,801 394,673 494,423 889,096 16,123,377 1,646,454
9 16,123,377 382,930 506,166 889,096 15,617,211
10 15,617,211 370,909 518,187 889,096 15,099,024
11 15,099,024 358,602 530,494 889,096 14,568,529
12 14,568,529 346,003 543,094 889,096 14,025,436 1,458,443
13 14,025,436 333,104 555,992 889,096 13,469,444
14 13,469,444 319,899 569,197 889,096 12,900,247
15 12,900,247 306,381 582,715 889,096 12,317,531
16 12,317,531 292,541 596,555 889,096 11,720,977 1,251,926
17 11,720,977 278,373 610,723 889,096 11,110,254
18 11,110,254 263,869 625,228 889,096 10,485,026
19 10,485,026 249,019 640,077 889,096 9,844,949
20 9,844,949 233,818 655,279 889,096 9,189,670 1,025,079
21 9,189,670 218,255 670,842 889,096 8,518,829
22 8,518,829 202,322 686,774 889,096 7,832,055
23 7,832,055 186,011 703,085 889,096 7,128,970
24 7,128,970 169,313 719,783 889,096 6,409,187 775,901
25 6,409,187 152,218 736,878 889,096 5,672,309
26 5,672,309 134,717 754,379 889,096 4,917,930
27 4,917,930 116,801 772,295 889,096 4,145,635
28 4,145,635 98,459 790,637 889,096 3,354,997 502,195
29 3,354,997 79,681 809,415 889,096 2,545,582
30 2,545,582 60,458 828,639 889,096 1,716,944
31 1,716,944 40,777 848,319 889,096 868,625
32 868,625 20,630 868,624 889,254 0 201,546

[[[
Annexes:
Description Unit Price Total

No Quantity
Kitchen Utilities Birr Birr
1 IGNIS Deep freez 578 litmade in italy 2 13,285.00 26,570.00
2 MARENO Heavy duity 4Gas burne with Gas oven made in Italy 1 74,290.00 74,290.00
3 MARENO Heavy duity 4Electric Plate with base unit made in Italy 1 79,355.00 79,355.00
4 La CIMBALI Coffee Machine Model M21 mede in Italy Gas + Electric 2 75,985.00 151,970.00
5 MARENO Grill made in Italy Heavyduit Electric plate 1 41,420.00 41,420.00
6 IGNIS Refrigerator 490 Lit 2 12,599.00 25,198.00
7 Flask 400 386.96 154,782.61
8 chopper mate 400 198.26 79,304.35
9 Deep Frying electric 10 1,408.70 14,086.96
10 Cutting Board 5 421.74 2,108.70
11 Digital scale 2 410.43 820.87
12 Electric Juicer 2 326.09 652.17
13 Electric Blender 2 913.04 1,826.09
14 S/s Chaffing dish partition 8 Lit 3 6,267.13 18,801.39
15 Dinner Plate 20 98.57 1,971.30
16 Alu Cooking pot 60 Lit 5 1,755.22 8,776.09
17 Alu Cooking pot 30 Lit 5 1,248.26 6,241.30
18 Alu Cooking pot 13 Lit 5 350.00 1,750.00
19 Frying Pan 24cm 10 285.22 2,852.17
20 Non stick Frying Pan 28cm 10 222.04 2,220.43
21 Lader round 50 40.87 2,043.48
22 Egg Bitter 18 inch 20 56.00 1,120.00
23 s/s knife 8" 400 95.65 38,260.87
24 Bbq skewer 400 45.30 18,121.74
25 Salad Bowl Glass 200 313.04 62,608.70
26 Foek 400 24.35 9,739.13
27 Food Tong 300 58.70 17,608.70
28 Bread Basket 3pcs 100 187.83 18,782.61
29 Strainer 28cm 30 125.22 3,756.52
30 s/s Sauce pan 200 68.87 13,773.91
Sub-Total 880,813.09
VAT 15% 132121.963
Total 1,012,935.05

[[[
No Quantity
Kitchen Utilities Birr Birr
31 Can opener 20 189.13 3,782.61
32 s/s Greater 4 side 23cm 10 78.26 782.61
33 s/s Sauce pan 50 94.13 4,706.52
34 s/s Pasta colander 100 177.39 17,739.13
35 s/s Bowl 27cm 50 187.83 9,391.30
36 Winw opener 10 189.13 1,891.30
37 Tumber 50 38.04 1,902.17
38 Beer Glass 200 36.74 7,347.83
39 Wine glass white 200 36.52 7,304.35
40 Shampagn glass 100 42.61 4,260.87
41 Shoot Glass 100 22.83 2,282.61
42 Honey Pot Dispenser 500 26.09 13,043.48
43 s/s Service trolly 3 tiers 20 7,575.65 151,513.04
44 s/s Pasta colander 50 550.96 27,547.83
45 Tea Spoon 100 20.00 2,000.00
46 95 pcs Dinner Set 50 3,600.00 180,000.00
47 Water Glass 300 41.30 12,391.30
48 3" Knife 200 12.17 2,434.78
49 s/s Ice Bucket big 100 220.43 22,043.48
50 s/s ash Tray 250 95.65 23,913.04
51 luminarc tumbler 150 27.83 4,173.91
52 Margarita Glass 100 78.26 7,826.09
53 Microwave Oven 10 6,513.04 65,130.43
54 Washing Machine 27KG 1 239,130.43 239,130.43
55 Drayer 35KG 1 165,217.39 165,217.39
56 Oven with 6 Trays 380V 1 41,739.13 41,739.13
57 Dough Divider 1 47,826.09 47,826.09
58 Spiral Mixer 50Lit 1 36,521.74 36,521.74
59 Cake Display 2Mt 1 59,130.43 59,130.43
60 Popcorn Machine with Cart 1 10,434.78 10,434.78
61 Vacuum Cleaner 2 8,695.65 17,391.30
62 Laundery Washing Machine 45KG 1 250,000.00 250,000.00
63 Aluminum PBC 500 120.00 60,000.00
Total 1,500,799.99
VAT 15% 225119.9978
1,725,919.98
Total Kitchen and uten
2,738,855.03

[[[
Unit
Discription Price
Total
No Quantity
Furniture, Fixture and Office Equipment Birr Birr
1 Panasonic Air conditioner outdoor unit CU-PC 24 MKF 3 9,356.52 28,069.57
2 Panasonic Air conditioner in door unit CU-PC 24 MKF 3 6,082.61 18,247.83
3 CANON IR-2420 Digital photo copier 1 22,500.00 22,500.00
4 CANON C-EXV14 Toner (pack of 2) 1 2,000.00 2,000.00
5 CANON LBP-6750DN laser Printer 5 20,000.00 100,000.00
6 CANON L-380 Fax with tel handset 1 13,800.00 13,800.00
7 EPSON S11 LCD Projector 2600 lumens 1 16,000.00 16,000.00
9 NOBO Mobile White Board 1200 x 1500mm with stand 1 4,500.00 4,500.00
10 NOBO Matt Wall screen(2.4 x 1.8mts) 1 2,700.00 2,700.00
11 LG TV 32" LK310 30 10,869.57 326,086.96
12 LG TV 42" LK430 3 20,869.57 62,608.70
13 LG TV 42" LED LV 3500 2 26,956.52 53,913.04
King size Bed (A-619)
14 King size Bed with side tables 30 39,956.52 1,198,695.60
Dressing Table and mattress size 1.80m
15 Chase Table (206/618) Imported High quality Coffee Table with 2 Chairs 30 19,086.96 572,608.80
16 TV-Stand (2801) Glass TV Stand 30 6,043.48 181,304.40
Restaurant Chair (LF-522)
17 200 1,695.65 339,130.00
Restaurant chair Aluminium
Restaurant/Cafe Table (LF-640)
18 50 3,043.48 152,174.00
Restaurant Table- square wooden made
19 Floor Lamp (ML-68544)Floor Lamp 7 2,565.22 17,956.54
20 Table Lamp (MT-68544)Table Lamp 30 1,695.65 50,869.50
SOFA (1+1+2+3)-LEATHER(616) SOFA (1+1+2+3)-
21 2 78,217.39 156,434.78
LEATHER(616)
22 Coffee Table (0012)Wooden coffee table - imported 2 3,652.17 7,304.34
23 Coffee Table (0006B) Coffee Table 4 2,565.22 10,260.88
Rception Desk (3388C)Reception Table with drawers and lots of
24 1 26,043.48 26,043.48
storage spaces-wooden made-with glass top size: 3.80m
Computer Table (T-10012)
25 Computer Desk with open compartement for computer system, under 15 2,173.91 32,608.65
shelf for printer and caster wheels.size 0.80x0.60x0.75
Secretary Chair without arm (Z-5F532)
26 Secreatarial chair without arm-with five caster wheels padded and 3 1,608.70 4,826.10
covered with quality fabric hydraulic lift system,swivel
Standard Table (T-F7143)
Single Pedestal Office Table with three lockbale drawers, open
27 3 5,173.91 15,521.73
compartemenr for computer system sliding keyboard tray and one
small drawer size 1.40x0.70x0.75
High Back Chair (286010)
28 High Back Chair with arm- with five castor wheels padded and 15 1,695.65 25,434.75
covered with quality fabrics hydraulic lift system, swivel
Bar Stool(280260)
29 10 2,173.91 21,739.10
Bar Stool with lifting system and foot rest and back rest
Bar Table (wooden) (AJ-02)
30 1 78,217.39 78,217.39
imported Bar for home use with shelf at the back made of wooden
Conference Table (H-F7500)
Excutive Conference Table (suitable for board Meetings)
31 Accomodates up to 22 people, has pockets for agenda for each 1 45,173.91 45,173.91
participant. Ready for conferencing sound system installation
size:5.00m
Total 3,586,730.04
VAT 15% 538,009.51
Sub-total 4,124,739.54

[[[
Discription Unit Price Total
No Quantity
Furniture, Fixture and Office Equipement Birr Birr
Conference Table (H-F7700)
Excutive Conference Table (suitable for board Meetings)
32 1 64,304.35 64,304.35
Accomodates up to 22 people, has pockets for agenda for each participant.
Ready for conferencing sound system installation size:7.00m
Guest/Conference Chair (Y-E6241)
33 500 4,782.61 2,391,305.00
Guest Chair with Wooden U-Legged
34 Café Chair(JL-55)Aluminium Chir with wooden seat and wooden back rest 200 1,173.91 234,782.00
Guest/Conference Chair (283760)
35 4 2,173.91 8,695.64
Managerial Guest Chair - Wooden Arm and Wooden Leg
36 Executive-L-shape Table (F-9C222)Exeutive Table size: 2.20x1.10x0.76 3 19,956.52 59,869.56
High Back Chair (Z-1K113)
37 Presidential Chair -High Back-Covered with Leather with Wooden Arm and 3 10,869.57 32,608.71
Wooden Legs
Three Door Shelf (W-Y3131)
38 Shelf with three lockable glass doors on top with adjustable partitions inside & 1 10,391.30 10,391.30
two wooden doors and lockable drawers at the boottom size:1.30x0.40x1.90
Coffee Table (C-C4121)
39 Coffee Table, Wooden made, rectangular with under shel for news paper and 5 3,434.78 17,173.90
etc.and drawers on each side size:1.20x0.60x0.45
Guest/Conference Chair (Y-E3341(040))
40 5 4,304.35 21,521.75
Managerial Guest Chair-wooden arm and wooden legs
Executive-L-shape Table (T-Y2202)
Exeutive Table with lockable mobile pedestal, leather padding, cable passage,
41 1 19,086.96 19,086.96
small middele drawer and mobile side table with keyboard tray, open
compartement for computer system size:2.00x1.00x0.75
High Back Chair(966)
42 1 8,652.17 8,652.17
High Back Chair-with wooden arm and wooden legs,with hyd
Coffee Table (C-C5061)
43 Cofee Table -wooden square with under shelf for news paper and etc. 5 2,565.22 12,826.10
size:60x60x45
44 Meeting Chair(LV-D04)Meeting Chair(LV-D04) 5 3,652.17 18,260.85
Two Door Shelf(W-Y7090)
45 Shelf with two lockable glass on top and two wooden doors at the bottom with 1 6,043.48 6,043.48
internal adjustable partitions inside size:0.90x0.40x2.00
Managerial Table(T-F7166)
Executive/ Managerial L-Shape Table with 3 lockable fixed drawers, side table
46 2 10,391.30 20,782.60
with keyboard tray, open compartement for computer system and lots of
storage spaces size:1.60x0.80and0.9
47 Medium back Chair(Z-1M113)Presidential Chair-High Back with crom legs 2 8,652.17 17,304.34
L-Shape Table(T-Y6144)
48 L-Shape Table with side table with sliding keyboard drawer, open 3 6,043.48 18,130.44
compartement for computer and storage shelf size:1.40m
High back Chair(E-249)
49 Managerial Chair with arm High back-with five castor wheels padded and 1 2,391.30 2,391.30
covered with quality fabric, hydraulic lift system, Swivel.
Secretary Chair with arm (Z-49532)
50 1 2,173.92 2,173.92
Secreatarial chair with arm-fabric hydraulic lift system
Safe Box(DC3070EH)
51 1 17,347.83 17,347.83
Imported High quality Safe Box with Electronic Digital Lock 100KG
52 Wine Rack(T-05)Wine Rack 5 52,130.43 260,652.15
53 Dell Optiplex 380 Dual Core 3.0GHz computer 15 8,521.74 127,826.09
54 Dell Optiplex 790 Premier Desktop 1 9,782.61 9,782.61
55 HP LaserJet 2035N Printer 5 5,652.17 28,260.87
56 Montarbo Power Mixer 459 with four speaker and stand 1 120,869.57 120,869.57
57 Shure Wireless Microphone 2 6,521.74 13,043.48
58 Shure Wireless Microphone SM 58 2 2,956.52 5,913.04
59 Microphone Stand 2 678.26 1,356.52
60 Yamaha Key board PSR 910 with stand 1 43,478.26 43,478.26
61 Option two Amplifier SSA 160 160 watt 1 5,899.13 5,899.13
62 Shure Wireless Microphone 4 6,521.74 26,086.96
63 Bos speaker 90 watt 4 3,133.91 12,535.65
64 Microphone Floor Stand 2 678.26 1,356.52
65 Microphone with Table Stand 2 1,086.96 2,173.91
66 WT-2000 Walk Through Metal Detector 1 180,000.00 180,000.00
67 G220QX Diesel Generator 1 840,869.57 840,869.57
68 Electrical Passanger Lift with instalation cost 1 874,081.77 874,081.77
Total 5,537,838.29
VAT 15% 830675.7441
6,368,514.04
Total 10,493,253.58

[[[
No Quantity
Soft Furnishing Birr Birr
Bed cover (BC-01)

Bed cover - includes Mattress cover, bed skirt,
1 60 4,130.43
two standard size pillowcases one big pillowcase 247,825.80
and a small pillow. King size.
Bed Sheet (BS-180m)

2 90 2,173.91
1.8m Bed sheet with 2 Pillow cases 195,651.90
3 Table Cloth in meters 150 295.65

44,347.50
4 No one Quality curtains 500 200.00

100,000.00
curtains (Sis Yemegareja Cherk

5 500 110.00
(Geber)) 55,000.00
6 Yesefate waga bemeter 1000 25.00

25,000.00
7 Golden huke 1000 1.50

1,500.00
8 Yewelel mintaf (250 s.m*7 floor) 1750 208.00

364,000.00
Total 1,033,325.20
VAT 15% 154998.78
1,188,323.98

No Quantity
Vehicles Birr Birr
1 Toyota Hilux Double Cabin 4x4 Full Option 1 1,313,043.00

1,313,043.00
2 Toyota Coaster Bus 1 1,130,434.00

1,130,434.00
Total
2,443,477.00
VAT 15% 366521.55
Total
2,809,998.55

[[[

Meseret. Hotel

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Promoter: - Woy.

Meseret Goshu Page 1

II. PROJECT PROMOTER ............................................................................................................6

III. THE PROJECT ........................................................................................................................7

2. Project Status .......................................................................................................................8

3. Project Implementation Plan ..............................................................................................10

4. Beneficiaries of the Project .................................................................................................10

IV. ECONOMIC AND SECTOR REVIEW .......................................................................................11

1. Ethiopian Economy .............................................................................................................11

2. Tourism and Hotel Sector....................................................................................................14

V. MARKET- DEMAND & SUPPLY ANALYSIS AND STRATEGY.....................................................25

VI. TECHNICAL ANALYSIS..........................................................................................................40

VII. ORGANIZATION AND MANAGERMENT................................................................................43

2. Management and Human resource .....................................................................................46

VIII. FINANCIAL ANALYSIS ..........................................................................................................49

1. Investment cost and financing structure .............................................................................49

2. Revenue Projection at full capacity .....................................................................................50

3. Operating Costs ..................................................................................................................52

4. Depreciation and amortization ...........................................................................................55

5. Initial Working capital.........................................................................................................56

6. Financial Results .................................................................................................................56

Promoter: - Woy. Meseret Goshu Page 2

of UNESCO World Heritage Sites in Africa, with different sites spread

throughout the whole country, and, therefore, has great potential to

develop itself as a tourist destination. The Government of Ethiopia (GOE)

has prioritized tourism development in its development strategy, to

optimize the existing tourism resources as a driving force of economic

growth for the whole country.

Ethiopia is a strategically important country in the Horn of Africa for

most countries and therefore, many international meetings and

conferences are held in Ethiopia. This creates huge demand for

accommodation at an international standard and even an increase in

such a demand is expected in the future because the importance of

Ethiopia has been growing and many international organizations have

been continuously strengthening their institutions and augmenting their

personnel in Ethiopia. The supply of accommodation, however, is far

Promoter: - Woy. Meseret Goshu Page 3

but also poverty reduction.

investment in all areas of economic and social activities. The private

sector has been motivated by free market oriented economic policy on

the government. To stimulate private investment, the government

amended the investment proclamation several times which resulted in

booming of investment in all sectors of the economy.

Considering the attractive investment climate, Woy. Meseret Goshu has

decided to establish a three star hotel at Sebeta town of the Oromia

comprise B+G+5 main building.

The total investment cost of the project is estimated to be Birr 26.1

while the remaining 70 % is planned to be financed from bank loan.

Promoter: - Woy. Meseret Goshu Page 4

services at Sebeta town -a suburb to Addis Ababa.

The major Findings of the Feasibility Study are:

be Birr 85.5 million at the end of the project life.

 Using the major investment decision techniques, the launching of the

hotel project is found to be attractive showing the following financial

 Net present value………………………Birr 26.5 million

 Internal rate of return………………29%

will generate income to the government in the form of profit tax

during its project life.

Promoter: - Woy. Meseret Goshu Page 5

 Project promoter: - Woy. Meseret Goshu Gebere- Hiwot

 Project:- Three Star Hotel

 Address:-Oromia Region, Finfine special zone, Sebeta town, Kebele-02

 Registered capital: - birr 40 million.